Business Loan Calculator: SBA 7(a) vs Conventional vs Equipment Financing Compared
Compare the three most common business loan types side by side. Understand interest rates, terms, collateral requirements, and total cost of borrowing.
Choosing the Right Business Loan
Financing is the engine behind most business acquisitions, expansions, and equipment purchases. But choosing the wrong loan structure can cost you tens of thousands in unnecessary interest, trap you in rigid terms, or slow your deal to a crawl.
This guide compares the three most common business financing options — SBA 7(a) loans, conventional bank loans, and equipment financing — so you can pick the right tool for the job.
Head-to-Head Comparison
| Feature | SBA 7(a) | Conventional | Equipment Financing |
|---|---|---|---|
| Max Loan Amount | $5M | Varies (no SBA cap) | Up to 100% of equipment value |
| Interest Rates | Prime + 2.25%–2.75% | Prime + 0.5%–3% | 5%–30% (credit dependent) |
| Typical Term | 10 years (25 for RE) | 3–7 years | 3–7 years (equipment life) |
| Down Payment | 10%–20% | 20%–30% | 0%–20% |
| Collateral | Business + personal guarantee | Business assets + personal | Equipment itself |
| Approval Speed | 45–90 days | 2–4 weeks | 1–5 days |
| Prepayment Penalty | Yes (first 3 years) | Varies | Sometimes |
| Best For | Acquisitions, expansion | Strong borrowers, speed | Single equipment purchase |
SBA 7(a) Loans: The Acquisition Workhorse
SBA 7(a) loans are the most popular financing tool for business acquisitions. The government guarantee (up to 85%) makes banks willing to lend on longer terms with lower down payments than they'd otherwise offer.
SBA 7(a) Advantages
- Long terms (10 years) keep monthly payments manageable, preserving cash flow during the critical first years of ownership.
- Low down payment (10%–20%) lets you keep more capital in reserve for working capital and improvements.
- Includes goodwill financing — conventional loans often won't finance intangible assets like patient charts, brand value, or non-competes.
- Capped rates — SBA rules limit how much banks can charge above prime rate, protecting you from rate gouging.
SBA 7(a) Drawbacks
- Slow process (45–90 days) — extensive documentation, SBA review, and underwriting. Not ideal for time-sensitive deals.
- SBA guarantee fee — adds 2%–3.5% of the guaranteed portion to your cost upfront (can be financed into the loan).
- Prepayment penalty — if you pay off in the first 3 years, you'll owe a declining penalty (5% → 3% → 1%).
- Personal guarantee required — you're personally liable for the full amount, not just your equity.
SBA 7(a) Cost Example
Loan amount: $750,000
Rate: Prime (8.5%) + 2.75% = 11.25%
Term: 10 years
Monthly payment: $10,380
SBA guarantee fee: ~$19,688 (financed)
Total interest paid over life: $495,600
Total cost of borrowing: $515,288
Conventional Bank Loans: Speed & Flexibility
When Conventional Beats SBA
- You have 25%+ to put down — strong equity reduces risk enough that banks offer competitive rates without SBA backing.
- You need speed — conventional loans close in 2–4 weeks vs. 2–3 months for SBA.
- The loan is under $350K — SBA fees eat into small loan economics. Conventional may be cheaper overall.
- You plan to refinance quickly — no prepayment penalty (usually).
Conventional Loan Cost Example
Loan amount: $600,000 (20% down on $750K purchase)
Rate: Prime (8.5%) + 1.5% = 10.0%
Term: 5 years
Monthly payment: $12,748
Total interest paid: $164,880
Total cost of borrowing: $164,880
Lower total interest than SBA ($164K vs $515K) but much higher monthly payments ($12,748 vs $10,380). The trade-off: cash flow pressure now vs. total cost later.
Equipment Financing: Purpose-Built Simplicity
How Equipment Financing Works
Equipment financing uses the equipment itself as collateral. This simplifies underwriting, speeds approval, and often requires little or no down payment. Two main structures:
Equipment Loan
You own the equipment from day one. Loan is secured by it. You get the depreciation tax benefit (Section 179).
Equipment Lease
Lender owns the equipment. You make lease payments. At term end, you may buy it for $1 (capital lease) or return it (operating lease).
Equipment Financing Cost Example
Equipment cost: $120,000 (CBCT scanner)
Down payment: $0
Rate: 8.5%
Term: 5 years
Monthly payment: $2,460
Total interest paid: $27,600
Section 179 deduction (Year 1): Up to $120,000
The Section 179 tax deduction can offset a significant portion of the cost. At a 30% effective tax rate, that's $36,000 in tax savings — more than the total interest.
Decision Framework: Which Loan Is Right for You?
Buying a business or practice?
Start with SBA 7(a). The long term and low down payment preserve cash flow during the ownership transition. Only go conventional if you have 25%+ equity, want speed, or the deal is under $350K.
Buying a single piece of equipment?
Use equipment financing. Fastest approval, no additional collateral needed, and the Section 179 deduction makes the effective cost significantly lower.
Need working capital or multi-purpose funds?
SBA 7(a) if you can wait; conventional line of credit if you need speed. Equipment financing won't work for non-equipment needs.
Prioritizing lowest total cost?
Conventional with a shorter term and higher down payment. You'll pay less total interest but need stronger cash flow to handle higher monthly payments.
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